Hops Farmers Find Growth Business

Last fall, South Dakota businessman Steve Polley was scouting for ways to make some extra income when he saw a news headline: The price of hops was surging because of a global shortage.

ENLARGE

A farmer displays hops soon after they were harvested in Oregon.
Alamy

At the time, Mr. Polley knew little about hops, the flowering plants that give beers their distinct aromas and bitterness. Now, helped by a state agricultural grant, the 67-year-old is preparing for his first hops harvest on a small plot on his neighbor's land in Spearfish, S.D.

Mr. Polley is among a small but rising number of newcomers to attempt to grow hops on a commercial scale outside the Pacific Northwest, America's haven for hops. One of the most obscure crops in a long line of agriculture commodities to enjoy a recent price boom, hops are sprouting in numerous other locales, from Colorado to Wisconsin to New York. The growers aim to capitalize on hop prices that are as much as sixfold higher than a few years ago, as well as the nation's boom in small-batch "craft" brewers, like Colorado's New Belgium Brewing Co. and Odell Brewing Co., which are thirsty for locally grown hops.

"I'm convinced we have a chance to do something to help out the craft brewers" and make some money, says Mr. Polley, who also runs a legal-research firm.

For years, a world-wide glut of hops resulted in prices that were too low for U.S. growers to turn a profit. Many went bankrupt, sold their farms, moved into other crops or retired, says Ann George, administrator of Hop Growers of America, a trade group in Moxee, Wash. "Frankly, for the last 20 years, people have been trying to figure out how not to be hop growers," she says.

Ms. George has been inundated with phone calls from fledgling hops farmers seeking advice. But she is so swamped with her regular duties -- she has just one staff member because of cutbacks over the years -- that she has little time to help.

The U.S. is the second-largest producer of hops after Germany. Last year's harvest by the nation's roughly 70 commercial growers was valued at about $169 million, up from $118 million in 2006, according to Hop Growers of America. The last time the tiny industry saw anything close to such a valuable bounty was in 1995, when it reached $135 million.

Hops, which are green, cone-shaped flowers that grow on vines, are now selling to brewers on the spot market for about $20 to $30 a pound, up from roughly $5 just a few years ago. (Larger brewers typically lock in lower prices than that by signing long-term contracts.)

The Food Crisis

Prices jumped last year because of lower-than-average crop yields in some major hop-producing countries, including the U.S., due to issues such as bad weather and disease. Earlier this year, the expense and difficulty of procuring certain hop varieties caused some small U.S. brewers to change recipes or stop making certain brews.

Until the 1920s, New York state was the nation's hotbed for hops. However, two diseases -- downy mildew and powdery mildew -- crippled production, and the industry began moving to drier Western climates less susceptible to mildew. Today, nearly all of the nation's hops are grown in Washington, Oregon and Idaho.

The nascent hops farmers outside the Pacific Northwest will be able to grow the plants, says Ms. George, but will likely struggle to turn a profit. Growers need specialized equipment and labor to take hop cones off their vines, dry them and pack them, and that gear will be expensive for anyone trying to process hops on a large scale.

Ms. George also expects prices to fall within the next three to five years, in part because farmers in Washington, Oregon and Idaho added about 27% more acres this year, according to the U.S. Department of Agriculture.

Many new hop farmers are focused on selling to brewers in their region. Rick Pedersen, a farmer in Seneca Castle, N.Y., began growing hops in 1999 but wasn't able to start selling them until just few years ago, when the Ithaca Beer Co. in Ithaca, N.Y., became a customer. He is part of a budding revival of hops production in the Northeast, with farmers in states such as Pennsylvania also participating.

"It's not an easy thing to just start up from scratch," Mr. Pedersen says, adding he's still "not even close" to recouping his investment.

Colorado lacked the hop heritage of the Northeast when Colorado State University began testing the prospects for production several years ago. Since prices jumped last year, the university has been helping several hop farmers cultivate their crops.

"We have gotten calls from hay farmers who didn't know that hops are perennials," says Ali Hamm, 24, a horticulture student at Colorado State who is writing a manual for growing hops in Colorado for her master's thesis. "The level of ignorance is all over the board."

One potential grower who called is Mr. Polley, who is trying to start commercial hop farming in South Dakota. Mr. Polley, helped by a $2,400 grant from the South Dakota Department of Agriculture, and his neighbor are testing a dozen hop varieties this year. Expectations are modest for this year's harvest, however, because part of their crop was destroyed by a hailstorm earlier this month.

Eventually, they hope to plant 40 acres to 100 acres and provide hops to craft brewers in the region. But they would need to figure out how to pay for hop-processing equipment, or possibly team up with brewers to share costs.

Smaller brewers like Odell Brewing in Fort Collins, Colo., are interested in supporting area farmers as their use of "locally grown" ingredients helps them to woo regional customers, who are the primary audiences of craft beers. Beers made by smaller brewers often use more hops than mass-market recipies, so a greater crop supply also promises to hold down costs.

Odell plans for the third straight year to offer its Hand Picked Pale Ale-featuring organic hops grown at Colorado State-for a limited time in its tap room in the coming weeks. Sierra Nevada Brewing Co. recently announced a new ale featuring hops grown next to its brew house in Chico, Calif.

Some hops experts are skeptical about the prospects of the new growers. Ralph Olson, owner of Hopunion CBS LLC, a broker of hops, predicts many nascent growers won't be in business in a few years. Prices will come down, and insects can wreak havoc, he warns. Hops "are tough," he says. "The economics aren't there."

In South Dakota, Mr. Polley knows he's taking a risk. "We have some major issues we have got to deal with," he says.

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